05 Mar 2013: Report

Why a Highly Promising Electric Car Start-Up Is Failing

Better Place was touted as one of the world’s most innovative electric vehicle start-ups when it launched six years ago. But after selling fewer than 750 cars in a major initiative in Israel and losing more than $500 million, the company’s experience shows that EVs are still not ready for primetime.

by marc gunther

If you want to sell electric cars, Israel looks like a great place to start. It’s a small country, with most people clustered around Tel Aviv and Jerusalem. Gasoline costs more than $7.50 a gallon, and oil revenues help support Israel’s Arab foes. So it’s easy to understand why Shai Agassi, an entrepreneur who was born in Israel and made a fortune in Silicon Valley, chose to launch his Better Place electric-car company in Israel, while preparing plans to expand in Europe, Australia, Japan, China, and the U.S.

What’s harder to understand is why things have gone so badly. Better Place, which staked out its position in the electric car market with an innovative battery-swapping technology, has sold only about 750 cars in Israel, while piling up losses of more than $500 million. Agassi was forced out of Better Place in October, his successor as CEO quit in January, and the company has put its global rollout on hold. Better Place needs to raise more money this year, and that won’t be easy, insiders say.

Start-ups often stumble, of course, but Better Place’s woes raise questions that matter to anyone who cares about electric cars and their future in a low-carbon economy. Has Better Place sputtered because of its own

Better Place’s woes raise questions that matter to anyone who cares about EVs and their future.

mistakes, or are the company’s difficulties a sign of the broader challenges facing electric cars?

To find out, I spoke to company officials, industry experts, and electric-car executives at rival automakers. And to get a sense of the Better Place driving experience, I took a test drive in the company’s all-electric Renault Fluence EV during a recent trip to Israel, traveling 120 miles round-trip from Tel Aviv to a kibbutz in the Negev Desert.

Agassi, a hard-charging, charismatic software executive, launched Better Place in 2007 with a bold goal: To help end the global auto industry’s reliance on oil. Since then, Better Place has raised about $850 million — an astonishing figure for a start-up — from such sophisticated investors as HSBC Group, Morgan Stanley, General Electric, Vantage Point Capital Partners, and the conglomerate Israel Corp., its biggest shareholder.

When analysts from Deutsche Bank took a close look at Better Place in 2008, they wrote that the company’s unique business model could lead to a “paradigm shift” that causes “massive disruption” to the auto industry, and said the company has “the potential to eliminate the gasoline engine altogether.” Renault-Nissan agreed to manufacture 100,000 electric cars, tailored to Better Place specifications.

At Better Place’s battery-switching stations, a depleted battery is replaced with a fully charged one in about five minutes.

What got many people (including this writer) excited about Better Place was Agassi’s unorthodox solution to the two big problems with electric cars: You can’t drive them very far without recharging, and they are expensive to build because the battery adds $10,000 or more in costs. David Jones, Better Place’s vice president of business development, put it bluntly when we met: “Gas cars are convenient and affordable. Electric cars — prior to Better Place — are neither of those things. They’re not convenient. They’re not affordable.”

The Better Place solution is to literally separate the battery from the car. To make refueling convenient, Better Place invented automated battery-switching stations; they deploy robots that slide under the car, remove a depleted battery, and replace it with a fully charged one in about five minutes. These battery-swapping stations work faster than chargers; the company has built 37 of them across Israel. By retaining ownership of the battery, Better Place is able to reduce the sticker price of the car, and upgrade the battery as the technology improves.

Like wireless phone companies that discount their hardware and make the money back by selling minutes, Better Place reduces the price of the car and charges its owners a monthly fee for the battery and electricity, based on how many miles they travel. The economics make sense, at least in theory, because electric motors are more efficient than internal combustion engines; buying electricity for an EV is the equivalent of buying gas for about $1 a gallon, says the Electric Drive Transportation Association, an industry group.

In fact, leasing a Better Place car in Israel costs about 20 percent less than a Toyota Prius or Honda Insight hybrid, the company says. “The economics of the electric car are fundamentally better, long-term,” says Mike Granoff, a senior executive at Better Place. In his heyday, Agassi liked to tell people that Better Place would eventually be able to give cars away, and still turn a profit.

But such rosy projections never came close to materializing. One of the unexpected things to go wrong was that the company didn’t get much help from Israel. Although Shimon Peres, the former Israeli president, was an

One unexpected thing that went wrong is that the company didn’t get much help from Israel.

enthusiastic Better Place supporter, Israel — unlike the U.S. — provides no subsidies to EVs.

Local authorities, whose permission was needed to build battery-switching stations, put up unexpected roadblocks, slowing progress, company officials said. And when employers provide the cars to their workers, which is a common practice in Israel, the workers pay a usage tax that reflects the full value of the car, including the battery, undermining Better Place’s effort to drive down costs.

Another shortcoming: Better Place assumed that other automakers would build vehicles that are compatible with its battery-swapping technology, but so far only Renault has done so. The only Better Place car available is the Fluence, a family sedan that’s too big for some drivers and too small for others. Marketing has been another challenge: The company is asking its customers not only to embrace a new technology, but an unfamiliar business model that is hard to explain. Then, just as positive word-of-mouth about the company began to spread last year, Agassi’s departure cast a pall over the enterprise.

“The model requires a leap of faith on the part of the customer, and many were unwilling to take that leap because of the slowness of Better Place’s development,” said John Gartner, an electric car expert with Pike Research. He said battery swapping might make sense for taxis or fleets, but not on a broad scale.

My test drive with Better Place was a mixed bag. On the round trip from Tel Aviv to the Negev, I had to switch batteries twice, going slightly out of my way both times. That’s far from ideal. On the plus side, the battery-switching station, which resembled an automated car wash, worked perfectly: I was in and out in about five minutes, without having to leave my car. And I loved the instant torque and the quiet of the Fluence EV.

Better Place customers seem to be satisfied, too. “We are all so overwhelmingly happy with the service and the car,” an owner known as Brian of London wrote in a blog post after a recent meeting of owners organized by the company; not surprisingly, the feedback was positive.

Although their numbers are small, electric vehicle owners worldwide are generally happy with the new technology. In the U.S., for example,

One analyst says the issues at Better Place won’t effect electric vehicles elsewhere.

the Chevy Volt has topped Consumer Reports’ annual owner satisfaction survey two years in a row. The Volt overcomes range anxiety by adding a small gasoline engine to its electric drive train, while the all-electric Nissan Leaf depends on a network of public charging stations. All the companies offer home chargers to their owners.

According to Gartner, the issues at Better Place won’t affect electric cars elsewhere. In the U.S., sales of the Chevy Volt, Nissan Leaf, and Tesla Model S are all growing, albeit off a very small base. “While the payback period for some EVs today is too long, we are still in the early days of the industry,” he says.

Better Place executives, including Agassi and Evan Thornley, who briefly succeeded him as CEO, say there’s nothing wrong with the company’s strategy.

“I continue to believe that the Better Place vision is both accurate and commercially sound, and trust that whatever shortfalls we suffer are correctly seen as errors of execution not of strategy,” Thornley wrote to employees when he left. Mike Granoff told me that “a million things didn’t go right,” but that Better Place’s approach still makes sense. The company sold more than 100 cars a month in January and February, accounting for about 0.5 percent of all sales in Israel. In December, only 23 were sold.

Others, though, say the Better Place story underscores the fundamental challenge facing the electric car. Without battery-switching, pure electric cars have a limited range and they take a long time to recharge.

Vehicles that virtually drive themselves are no longer the stuff of science fiction, with Google and other companies working to develop self-driving cars. As Dave Levitan reports, these automated vehicles not only offer improved safety and fewer traffic jams, but real environmental benefits as well.READ MORE

“The gasoline fuel tank is a pretty phenomenal storage device for energy,” says Brett Smith, an industry analyst with the Center for Automotive Research. “The battery may never really compare, at least not in the next 20 years.”

Then again, whatever their flaws, there’s no doubt that electric cars generate what economists call “positive externalities.” They’re good for the environment and for a nation’s security because they reduce dependence on oil imports. That’s why the Obama administration, which set a goal of getting 1 million electric vehicles on U.S. roads by 2015, has thrown its support to electric cars, providing about $2.5 billion in loans and grants to electric-car manufacturers and battery makers, as well as $7,500 in tax credits to electric car buyers.

But the administration, as well as the industry, has yet to provide a clear answer to a simple question about electric cars and companies like Better Place: What, exactly, is the consumer problem that EVs are trying to solve? Are they about saving money in the long run, not having to worry about rising gas prices, reducing the environmental impact of driving, or just enjoying the ride? Put another way, if electric cars are the answer, what’s the question?

COMMENTS

Great Article.. but I think you left out the financial fiasco that was revealed after Agassi's removal and still going on today. This includes no financial management or reporting for many quarters, amazing expenditure for the benefit of company high ranking officials, purchase of redundant and expensive equipment and more.. just as an example Better Place's parent company brought in a consultant in November 2012 which charged the company $100,000 per month for part time job !! No doubt Agassi left behind not just a broken dream but also a financial mess which seems to stick also to current management.

Posted by
Ido Gafni
on 05 Mar 2013

Until the world seriously considers and believes in electric cars, the industry doesn't have a chance. We need a transformation to occur. We need the general public to finally understand the effects of combustion of petroleum products and all of the peripheral costs associated with that mode of powering vehicles.

We need a global awakening to occur. The environmental, economic and national security implications must be broadcast in a way that is easy to understand. People need to know the facts about toxins released by vehicles and how those toxins wind up in everyone's air, water and food. The continued use of petroleum powered vehicles is poisoning all of us.

It is time for America and the rest of the world to wake up and embrace electric car initiatives. The health and well being of all of us depends on it.

Posted by
Michael J. Hannon
on 05 Mar 2013

Having followed Better Place with interest, found your article timely and informative.

However, surprised at the marketing.

Expecting customers to suffer constricted driving routes and less performance as a modest gas car is not a deal.

But, if they offer an $18,000 vehicle (see litmotors.com), customers will form an enthusiastic subculture as they did for VW beetles.

Posted by
cccccttttt
on 05 Mar 2013

This reveals nothing about electric cars or their potential in the market.

The only thing it reveals is that trying to radically remake the auto transportation model is a fools
errand. It took over 60 years to make automotive travel into what it is today. One startup is not going to change that. If change is to be accomplished, it will have to happen over decades.

Also what we have learned is that the star power of a charismatic CEO doesn't make a company
profitable. Better Place was a bubble, and that's all there is to it.

Posted by
Daniel Reuter
on 05 Mar 2013

Yes indeed a great article… Albeit a depressing one…

But nobody said that it would be a piece of cake. When largest shareholder of the company is a business man who also owns oil refineries, from the beginning it seems contrary to the nature. Don't forget the fact that 7 out of 10 most powerful companies in the world are fossil fuel producing, remainders tightly related only one being unrelated (a fruit company). You wouldn't expect them to let those kids disrupt their business, would you?

Nonetheless, this shift has to operate it's already too late. Burning something to drive or generate energy other than for cooking and for heating must be banned! That's the only way we can finish with fossils.

Yes the energy density of fossils are a discouraging fact for not advancing the battery driven EVs, but at the same time we've come a long way from Lead Acid (10x for Lithium, as well as the abundance, nontoxic, recyclable nature of it) so that shouldn't be a brake on advancing the electrification of transport.

160 km of range is more than enough for 90 percent of drivers (other 10 percent are encouraged to continue burning whatever they like) Although, I'd prefer them keeping some of the emissions inside the car, instead of polluting outside behind the times and what lies ahead!

Posted by
Mimar Sinan
on 06 Mar 2013

What if EV cars did not need hardly any outside charging? What if they had consistent trickle charging always going on? What if they had:

1) PV built into the body providing consistent trickle charge anytime any light is present (i.e., thin film coated like with Aleo Solar (which works off all light, direct or indirect via infrared) or the new one that uses ALL incoming light and has a +90 percent efficiency).

2) permanent magnet DC high efficiency generators in the wheels so trickle charge also occurs every time the wheels move.

3) Ultra capacitors used in order to cut down on battery drawdowns during high power demand times such as initial acceleration (these can extend a battery charge up to 15 times when used with portable power tools).

4) low efficiency magnetic field inducing generators used in regenerative braking for recapture of some energy (or maybe try some flywheel technology, which I haven't seen used yet, the other items however are all ready to go).

5) Altairnano Nanosafe nano coated titanium dioxide batteries do not heat up, test up to 20,000 recharges, operate well in extreme temperatures, charge in 10 minutes and can be stacked to provide extended ranges.

6) High efficiency motors by UQM or Dyson.

Such a car would rarely need to be "plugged in" to the grid because the high efficiency coupled with the constant trickle charging would greatly extend the life of each battery charge. It would sell very well throughout the world, put more money back into the hands of the people because they would not have to be buying unneeded outside produced polluting energy, erasing much carbon presently being produced alleviating some of the climate change, change the geopolitical, financial and military structures throughout the world, i.e., middle east, Iran, Venezuela, ETC., help alleviate the need for us to be spending such great sums of money and precious resources including military on the Middle East, cut down on pollution and the attendant health problems and costs incurred by such, no more oil drilling in ecologically precious areas. Yeah, I guess it makes too much sense and the greedy oil and gas barons and their lackeys in Congress won't allow it.

Posted by
Jonathan Romero
on 06 Mar 2013

Have you also checked out the results of the 1996 NESEA Tour de Sol, where with 1996 technology the Solectria Sunrise attained 375 miles per charge, the Ford Ecostar attained 235 miles per charge and the GM EV-1 attained 125 miles per charge? This is all documented. If, you think it is worthy, you could get someone to look at my proposal for the "forever" car, (reference to long charge life) in the universities and they do some basic calculations as to the effectiveness of the design, you may do some real good. Plus, I would appreciate it greatly.

Posted by
Jonathan Romero
on 06 Mar 2013

Thanks for these thoughtful comments. I agree that we will need culture shifts as well as improved battery technology to drive EV adoption into the mainstream. Higher oil prices should help, too, as well as creative financing, to reduce the upfront outlays and capitalize on the operating-cost savings. (Much the way SunRun and SolarCity have done for solar energy.)

@jonathan, yes, a car that constantly recharges itself is not a crazy idea. During my reporting, I heard about a plan to build roadways that would recharge the cars. Please don't ask me to explain how they would work!

Posted by
Marc Gunther
on 07 Mar 2013

@cccccttttt, very true, the first few years of auto travel were undoubtedly much worse and it wasn't until the infrastructure was mostly in place that mass adoption occurred. One company without support from the rest of the industry and governments is unlikely (though not impossible) to succeed.

I believe Shai's vision is brilliant and it is possibly the way all EVs will go (unless/until the technologies mentioned my Mimar are commercialized - which could take years). However, making it a reality is very hard. One key success factor is that you need automakers to sign up for this approach but it also puts restrictions on design which they may not want to do. Plus, how well the automakers market the EV is important- as well as marketing the concept to the public which is expensive. Not to speak of the investment in the technology, robots, building stations.

I have no knowledge on how the company was run, but it is clear that everything would have to be close to flawless to pull this off and even then, it was not a slam dunk.

Also, I sometimes wonder if Shai's style may have gotten in the way of some negotiations. I can imagine people who have been in the business a long time bristling at a young guy from outside the business telling them that he has a better approach.

All in all, I had high hopes for Better Place, but even if it does not succeed, it will have changed our thinking about how to make EVs a reality.

Posted by
David Dines
on 19 Mar 2013

The EV is still very new. I feel that any business must take its hit the first 3-5 years of start-up. I believe that Better Place has done their homework, but not enough. It is the psyche of consumers that is holding the car back. What will happen in three years after I have bought this car? If it breaks down, who will fix it? Will there be a company in five years to offers parts or will they have shut down and my whole investment is worth nothing.

Better Place and other companies that follow must consider the consumer’s psyche. People are lazy in this world. They do not want to go out of their way to refuel. For the EV to take off in any country there must be a major infrastructure overhaul. I do not believe in the government interfering with day-to-day business, but the consumer must see that its country is willing to invest in the infrastructure to provide charging stations just as close as a gas station.

Posted by
Eric Allen Hendrix
on 01 Apr 2013

A strain runs through the comments here - 'people have to change.' Since when do customers have to change to serve the industry's interest? What a thing to say! And no, electric cars are not a new technology. Electric cars predate internal combustion-powered engines. Electric cars are failing, in spite of money being thrown at them by investors and governments because.... they [stink]. They are not an improvement on gas and diesel powered cars - they are multiple steps backwards. Cost more, do less. That is not a slogan that will attract customers.

Posted by
MarkB
on 09 Apr 2013

"... if electric cars are the answer, what’s the question?"

The question, to paraphrase Amory Lovins, is not what to drive, but how do we get from A to B? He notes that only .3 percent of the energy in a car's gas moves a lone driver. Electric bikes are something like 31 percent efficient, over one HUNDRED times better, because they are "right-sized" for much urban commuting or other travel. http://www.ebikes.ca/sustainability/Ebike_Energy.pdf

THAT's the kind of energy efficiency improvement we can't pass up if we want to reduce CO2 emissions 90 percent, fast. "Factor 10" is nothing compared to this.

A bicycle-sized "EV" doesn't need a heavy, expensive battery which requires a robot installation to switch. So it may be "right-sized" for the current state of electric tech, as well.

I've calculated that someone who can cut their average American 14,000 miles a year of driving in half by e-biking will pay for a good $3000 ebike in 3 years in saved gas. Then they usually need a new $300 battery.

There really should be an X-Prize for a more affordable, durable and fixable ebike.

Here in Boulder ebikes are illegal on paths and racks, so I started a petition to fix that: http://signon.org/sign/legalize-ebikes-on-boulder

Posted by
Evan Ravitz
on 11 Apr 2013

Good article.

What are commercially available are electric cars. These are getting both cheaper and better every year. Every major car manufacturer in the world is working on developing either pure electric or hybrid electric /other fuel cars.

For short to medium range driving electric cars are already economical. They offer, low maintenance, quiet driving, energy efficiency, low running cost, instant start even in very cold weather, instant high torque from stop. As the numbers increase and the technology matures they will become the car of choice. Expect this to happen in the next decade.

Any electric car can be charged by solar energy if there are solar panels installed at your point of charge. The surface area of a typical electric car is not enough to provide the energy you need.

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